The British Virgin Islands has long been hailed as a leading
offshore jurisdiction for wealth management and asset protection
amongst Latin American high net worth families and individuals.
Over the next four years, Latin American HNWIs, family offices and
fund managers are predicted to drive an increase in offshore
business of approximately 24 per cent.

Much of the BVI's appeal to Latin American end-user clients
derives from its economic and political stability, its commitment
to business and the financial services industry and its independent
legal system based primarily on English common law and equitable
principles. The BVI also has modern legislation often based on the
statutes of leading onshore jurisdictions. Disputants have access
to a well-established court system including a specialist court
modeled on the London Commercial Court, and an appellate framework
within which a final appeal lies to the Judicial Committee of the
Privy Council.

The provisions of the BVI Trustee Ordinance (Cap 303) (the
Ordinance) facilitate the principal advantages of using an offshore
trust which are to hold, preserve and transfer wealth while
maintaining flexibility and confidentiality. The Ordinance contains
comprehensive provisions regarding reserved powers, purpose trusts,
conflict of laws and trustee powers, including the power to
delegate investment strategy to agents.

Powers of investment and delegation are ordinarily prescribed by
express provisions of the trust instrument, however paragraph 2 of
the Second Schedule of the Ordinance, which is commonly applied to
a BVI trust by express reference in the trust instrument pursuant
to s.93 of the Ordinance, authorises a trustee to invest any
portion of the trust fund and s.3 of the Ordinance protects a
trustee in respect of investment activities provided he exercises
the diligence and prudence that a reasonable person would be
expected to exercise in making the investment as if it were his own
money. Section 24 of the Ordinance permits a trustee to appoint
agents to transact any business or do any act required to be done
in the execution of the trust, and provided the appointment is made
in good faith (ie honestly), the trustee is not responsible for the
agent's defaults. Paragraph 4(q) of the Second Schedule to the
Ordinance specifically empowers a trustee to engage the services of
an investment adviser without incurring liability for any action
taken in good faith in accordance with the advice of such adviser.
Therefore at first blush, the delegation of a trustee's powers
of investment to a professional manager (whether on an advisory or
full discretionary basis) can be achieved with impunity provided
the trustee acts honestly.

The case of Appleby Corporate Services v Citco Trustees BVIHC
[2014] 1 JBVIC 2001 concerned a BVI discretionary trust settled by
a wealthy Argentine national. The trust fund was worth
approximately US$7 million and consisted of the entire issued share
capital of a BVI registered company. Those shares were held by
Citco as trustee. Pursuant to paragraph 4(q) of the Second Schedule
to the Ordinance, Citco appointed investment managers on a full
discretionary basis to manage the investment of the trust fund. The
investment guidelines agreed between Citco and the investment
managers precluded transactions involving commodities, derivatives,
margin payments or nil or partly paid securities unless expressly
authorised in writing by Citco. No such authorisation was
given.

Monthly portfolio statements were sent to Citco which not only
demonstrated a systematic and serious departure from the agreed
investment guidelines but also a sustained decrease in the value of
the trust fund. By the time Citco retired as trustee (around 11
years later), the value of the trust fund had dropped from around
US$7 million to US$142,000. In the ensuing claim brought by the
replacement trustee, it was alleged that Citco had a duty to
supervise the investment manager and to ensure that the delegated
powers and functions were not being abused. In upholding the claim,
the BVI Commercial Court held that a trustee had a duty to inform
itself at appropriate intervals that agreed investment guidelines
are being observed and that the overall value of the trust fund is
not being affected by abuse on the part of an investment manager to
which a trustee's powers and functions had been delegated.
Furthermore the 'good faith' exculpatory provisions of s.24
and paragraph 4(q) of the Second Schedule of the Ordinance did not
apply to a breach of duty to supervise an investment manager.
Accordingly, Citco was ordered to reconstitute the trust fund to
the value which it would have had if Citco had conscientiously
performed its duty of supervision. That value was assessed at
US$6.267 million.

The outcome in Appleby Corporate Services v Citco augments the
credibility of the BVI as a jurisdiction for secure and
sophisticated wealth management and asset protection. This case
also highlights the strengths of the BVI-only 'VISTA' trust
structure. Unlike standard discretionary trusts such as that used
in Appleby, the VISTA trust prevents the trustee from any
involvement in the management of the underlying BVI company (which
itself will hold the operating companies) except in extreme
circumstances. This means that the directors of the company, who
may be the settlor of the trust, family members and other trusted
individuals, can retain complete control, while still enjoying the
benefits of a BVI trust. Please see our guide to
VISTA trusts, for further information.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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